Nathan Hunt:  This is The Essential Podcast from S&P Global. My name is Nathan Hunt. Back in the pre-pandemic days of 2019, I found myself on a shuttle bus returning from Disney World, listening to a very loud fellow boast about his investments in cryptocurrency. I could not help but hope, while listening to his high-volume boasting, that his investments in digital assets would not provide the return he was looking for. For many of us, this is our impression of digital assets, pump-and-dump initial coin offerings offered up to the greater fools of the market. But I know this is not accurate.

Nathan Hunt:  In the past, when I was seeking a more nuanced, more mature view of digitization, there were two coworkers I would always seek out to understand blockchain, hashing, and digital assets. Chuck and Alex are coauthors of an extensive report on the digitalization of markets, which is available on the website of S&P Global Ratings.

Alex Birry:  Hi, I'm Alex Birry. I'm the chief analytical officer for Financial Institution Ratings.

Chuck Mounts:  This is Chuck Mounts, and I'm a senior research fellow in the S&P Global Ratings Group.

Nathan Hunt:  Chuck and Alex, I am so glad you could join me today on the podcast, to discuss this substantial article that you have both coauthored. I'm looking at over 40 pages of information, answers, analysis on the new digital ecosystem. My first question for both of you is tell me a bit about your purpose in writing this article. Are you trying to educate or convince, and if so, who are you trying to educate or convince?

Chuck Mounts:  Nathan, thanks for asking that question. I think that's a really relevant question for us. From our perspective, what we're striving to do with this report is establish our framework for our stakeholders and readers to one, understand the developing and emerging ecosystem around digitalization of markets, and then provide some data and analytics to kind of help them navigate their journey in digitalization of markets.

Chuck Mounts:  The report is really geared at providing really kind of a high-level overview of what digitalization means overall, and then it's followed by 13 write-ups that are components of that ecosystem. By nature of having 13 writeups, they are high level in nature, they are not exhaustive and not deep in the weeds, but providing the framework and the broad approach to foster and enable a deeper analysis and the next conversation.

Alex Birry:  Who are we at S&P Ratings? I mean, we're not a bunch of engineers or developers, so the aim for us is not to get too technical, but we do believe, and we did believe when we initiated this project that we do need to have a level of understanding of what's happening there, monitoring that and communicating on this. I think there's a need in this ecosystem for some observers that have independent views, and there's a lot of polarized views in the market, between either maximalist or minimalist in that ecosystem. And also, what we do at S&P Global Ratings is we try to connect the dots, and given the diversity of this ecosystem, that's something that we endeavored to do in this report. Then finally, obviously our raison d'être at S&P Ratings is to opine on credit implications, and we do think that there are some implications on either incumbents that we already rate or increasingly potentially new players that we'll be asked to rate. This report is one way to lay the foundations for that.

Nathan Hunt:  Alex, I want to pick up on something you talked about, about the maximalist and the minimalist when it comes to the digitization of markets. There can be no debate that this is one of the hottest topics in financial markets right now. I'm of two minds when it comes to this new digital ecosystem. On the one hand, I'm excited by the possibilities inherent in the fundamentally new combination of blockchain, cryptography, and smart contracts. On the other hand, I've been burned one too many times by, "This changes everything," technology boosterism. Where do you two fall on that continuum? Are you excited or adopting more of a wait-and-see approach to the development of digital finance?

Alex Birry:  My background is a rating analyst for probably the past 15 years, so I've been trained to be a skeptic, generally speaking, so I've got some skepticism ingrained in my mind, so I probably started this journey being more, yeah, vaguely on the minimalist side, but you used a phrase here, "In two minds." I think it's always a good sign when people are in two minds when they're confronted with something new and evolving fast. It's always better to first try and see the two sides of the coins. I think that's probably... That was probably my journey, seeing as well, trying to cut through the hype and the noise in some of the market commentaries, and just look at the technology, look at what it could mean.

Alex Birry:  I think that's really, on this journey, I did end up believing that there will be some material implications, some new developments. Yes, there's a lot of hype. Some things, some of these initiatives, new apps, et cetera, will fail, but there will be new disruptors that will sustainably impose new rules or new products. So yeah, I wouldn't say I'm maximalist. I don't believe in all the hype I'm reading, but I do think that there's a real shift happening in the markets. Chuck, what's your view?

Chuck Mounts:  Coming from my background, I started my career as a bank regulator at the Fed of New York, and spent most of the last couple of decades as a credit analyst covering the global financial sector and sovereigns. In the capacity as a regulator and a credit analyst, covering the financial sector, I've heard the quote-unquote "death of banking" presented many times, and I've never been a believer in that concept of the death of banking, and have believed that markets and market participants are adaptable, and adjust to whatever new business opportunities emerge or regulatory environments emerge. I still think that's true.

Chuck Mounts:  I think what's different this time is that the evolution of the technology capabilities, in essence really for the first time I think, enables a digital signature to be 100% verifiable and secure. It's simple in its concept, but that is pretty fundamental to how the capabilities can evolve in the ecosystem. So I'm a firm believer that the capabilities that are presented through the technology will have an impact in shaping the future of financial markets. I think it is likely to be a mix, being both complementary and also disruptive, but there are going to be many factors that emerge along the way, that will shape that progression. Some of them will be the technology itself, some it will be the adoption and the role and use cases of market participants, and the companies that evolve to facilitate that, and some of it will be around policymaking and regulation.

Chuck Mounts:  In total, I agree with Alex's comment and your comment originally, that there is a lot of bombastic comments being thrown around. I don't ascribe to those, or wouldn't be paying too much attention to that, but really looking at what are the technology capabilities along with the other exogenous factors that are going to drive this evolution in market structure.

Chuck Mounts:  And by the way, the evolution of market structure is already underway. It's not this is all in the future. This is already happening, so then it's just a question of the pace and scale of how it changes from here.

Nathan Hunt:  It's impossible to talk about digital assets and digital finance without talking about Bitcoin. To what extent do you think that is appropriate or distracting, since Bitcoin was the first and not necessarily the highest evolution of these new types of digital assets?

Chuck Mounts:  I'll kick off here. Bitcoin is an important part of the conversation, not just because of it's the starting point, but I think time will prove that, and we'll look back with 20/20 hindsight years from now, that it was really just the beginning of the development of the ecosystem. I think we are going to see multiple, probably perhaps countless, ways that the evolution of the digitalization of markets will emerge, whether it's through digitalization of existing assets that we know, that already exist, like fiat assets, whether it's the creation of new digital assets, whether it's the creation of new workflows, and new protocols, and different market structures, and how things, custody happens, and how execution happens. We're still in the very, very early stages of this. Bitcoin is often the entry point for thinking about and venturing into the digitalization of markets, so therefore has a role, but it will no way, in my opinion, no way be the endpoint.

Nathan Hunt:  So, understanding that the future is unknowable, particularly when it comes to this new digital financial ecosystem, let's talk about the current landscape. It's early days for digital finance and digital assets. What are the characteristics you both are seeing regarding adoption and sophistication in the market?

Alex Birry:  Adoption is growing. It started probably more by individual space. Bitcoin was the gateway to that ecosystem for many people, and because of the headlines it's attracted, obviously it's created a lot of publicity around that. But what we're seeing in terms of adoption, what's more interesting now for us, from a credit vantage point, an implication vantage point, is really the institutional adoption which seems to be really on the cusp of taking off. That's really what would probably take this ecosystem to the next level.

Alex Birry:  But what's interesting obviously in terms of incumbents or established players moving to adopt some of these technologies, one thing that's still stopping or reigning in ambitions there is the lack of clarity on future regulations and the future policy framework around that. In our report, we have a graph showing the timeline of some select announcements around regulations and policy for the past few years, and you can see that it's really taking off, which is good. I think that the fact that regulators and policymakers are catching up is a desirable outcome, but that's also a prerequisite for more mainstream adoption by institutional players.

Nathan Hunt:  Let's talk about regulation then. Gary Gensler, in a recent interview with the FT, said that crypto assets are no different than any others when it comes to such public policy imperatives as investor protection, guarding against illicit activity, and maintaining financial stability. Assuming this is the approach of the foremost financial regulator in the United States, what types of regulation might we see on the horizon, and how will that affect these nascent markets?

Alex Birry:  I think in terms of regulations, certainly we will see more, and we do need more regulations to frame this ecosystem, to avoid widespread risks as some of these applications get more mainstream. This is needed to protect risks for customers, risks for the various players in these markets, risks for tax authorities if they make dollars of bitcoins of potential taxable revenue, but also potential risk to financial stability. Suddenly, we will see initiatives in those different areas. Given the rapidly evolving nature of the technology, but also the borderless nature of many of these applications, that will also require a lot of global coordination. You can't just have one player in one market issuing rules, because activities might just shift abroad, and some of your domestic customers might still be able to access some of these applications abroad, so yes, global coordination will be key. But I suspect it will take several years for us to see a better established regulatory framework. I don't know, Chuck, if you had diverging views.

Chuck Mounts:  Yeah. I wouldn't say diverging views, just a couple of things I would probably add, and Alex just alluded to this, is that the policymaking landscape and policy framework, which would include, from our perspective, both the legislatures as well as regulators and regulatory frameworks, is very disjointed. It's disjointed within countries, and it's disjointed across countries. You can argue that the regulatory and the policymaking framework has been behind the curve, and are just now really starting to focus and put forth volumes of considerations and potential rules to the space, in part driven by the accelerating adoption of crypto broadly. So, although there have been rulings and kind of parameters established in the past, I would say that virtually every regulator in the world is looking at okay, how are we going to tackle this? What is a digital asset? What is a cryptocurrency? How does it get treated? How does it sit across different parameters of consideration within our own jurisdiction or across jurisdictions?

Chuck Mounts:  Part of our research report, we're pulling together the different regulatory organizations and policy organizations that are actively opining on this and providing proposals and frameworks, and it's something around 60 policymaking bodies globally are actively engaged. That's a huge number of chefs in the kitchen, who are striving to come up with a framework and provide some coherence across markets, and I think one of the key things that they're going to be trying to deal with is how to balance innovation, and innovation in a digital age, against prudential regulation and systemic safety and soundness. I think at the root, that's the balance that's going to have to be found in a regulatory and policy framework.

Chuck Mounts:  Some of the products in the digital ecosystem fit neatly into the structures that exist, such as perhaps tokenization of existing assets like an equity or a bond, but some of the capabilities and products don't. Those that connect or relate to decentralized finance or DAPPs, decentralized finance applications, where there is no kind of central counter-party or no intermediary agent to kind of apply a regulatory framework against. Those don't fit quite as neatly into the existing regulatory structures, so that's going to force, I would say, an adaptation of regulatory frameworks, or perhaps, in some instances, a complete revamp of parts or components of a regulatory framework, so that at the end of the day, we have a regulatory framework that is fit for purpose in a digital age.

Nathan Hunt:  I'd like to dive in a little bit into your answers, because when I look at the current size of the digital asset market, you see different estimates for that, but the one I read most recently is it's about 5% of the size of the total equity market, which is in turn dwarfed by the size of bond markets. It seems to me that in terms of guaranteeing the stability of financial markets, the regulators are looking at these digital markets with an eye towards assuming they will grow in the future, rather than necessarily reacting to the current moment. Do you feel like regulators are betting on growth here?

Alex Birry:  I think they do, and they have to. I think two reasons why I think they can expect growth, and therefore see that they have a growing role to play here, one is at the moment, the technology underpinning some of these blockchains is still not efficient. If you think of the processing power of Ethereum or Bitcoin, it's still, it's still limited by the technology it's using, the proof of work consensus mechanism for instance, but both of these chains, for instance, are on the verge of some technological enhancements that will really unleash better processing power. That means that therefore, transaction costs and the speed of transactions, could be dramatically enhanced, and therefore, these chains, for instance, could be much more user friendly or efficient for mainstream applications. That's one element, that the technology as well is evolving, and can probably become more mainstream very soon.

Alex Birry:  But also, if there's no regulation, you can see activities taking off, but also for activities to take off and potentially support a good degree of innovation. Innovation can mean better financial inclusion, et cetera. You do need regulations, but as soon as these regulations come, then as well, established players will be much more comfortable to explore some of these applications, and once established players enter this area with greater confidence, there will be a natural increase in the volumes we're talking about.

Chuck Mounts:  I would also add to that that I think they are betting on growth, but I think they're also just reacting to the reality of today. When you look at adoption rates of crypto, crypto technology, and digitalization, the adoption rates are at par or exceeding what they work back at the center time period when the internet first emerged. At the end of the day, you have, recent report I read, something like 150 million people own Bitcoin. You've got now a sovereign nation has adopted Bitcoin as legal tender. You've got companies that own Bitcoin, as an example, as part of their treasury function, and you've had a G20 country like China announce their trialing of the digital renminbi, so a CBDC. So the reality is, it's here. It's moving forward and it's here, so they need to respond. They need to have a coherent framework and approach to it just because of where we are today, and then if you throw on top of it the growth potential, it becomes imperative to have those frameworks in place.

Nathan Hunt:  You argue in the paper that blockchain capabilities can both complement and disrupt business workflows and market functions. I believe this is in the section on credit implications. Where do you see it complementing existing systems and where might we expect to see disruption?

Alex Birry:  I can have a go. I think, for instance, where it complements is where it potentially enhances processes, so where it can speed efficiency, and especially when you have multiple stakeholders involved in one process towards one common goal, I'm thinking for instance structured finance. It could really be a platform that helps communication between various stakeholders, or the flow of information in real time. For instance, from this point of view, it could complement this aspect.

Alex Birry:  Where it could replace certain actors is where actually you don't need those intermediaries anymore. I'm thinking, for instance, we are opining on that for now, decentralized lending is probably not jeopardizing the position from banks, established banks, in terms of lending, for instance to households, et cetera, because at the moment, the DeFi lending system seems to be very much still focused on lending for the purchase of other crypto assets, but lending that requires, as well, over-collateralization in the form of crypto assets, so you're doing basically over-collateralized lending. That's really not disrupting the business model of banks. We're yet to see really decentralized lending platforms allowing citizens to get mortgages.

Alex Birry:  But, we are seeing, for instance, some recent applications within the DeFi lending space, testing the waters in terms of un-collateralized lending. That's when it could get very interesting. If we do see peer-to-peer lending, more or less, or basically pools of liquidity being built within the system to then lend to potential borrowers, with some credit functions being played by certain actors in that ecosystem, that can, in this case, circumvent the role of banks in established lending products. As I said, we're still miles from that. At the moment, some of these apps are just being really tested. The volumes are really small, but that's an example of an application that could actually disrupt or eat market shares from established players.

Chuck Mounts:  One way to also think about disruption being complementary or disruptive, an interesting case point could be the evolution and portfolio management. You've got digitalization of assets that's underway, i.e. tokenizing existing assets, so you're going to have... Imagine a world where you have kind of the real or the tangible asset, like a piece of real estate, or a bond, or an equity, and then you also can have the tokenized version of those assets, that can be fractionalized for instance, so perhaps bringing in a different level of liquidity and market access, and maybe some different dynamics in the volatility and liquidity profiles of those digital assets versus the tangible ones.

Chuck Mounts:  But in addition to that, you're going to have what I would imagine to be the creation of digital native assets, so assets that are unique to the digitalized marketplace. At some future date, you can imagine portfolio managers and management decision-making that has to marry and blend tangible assets with digital assets, comparing their risk profile, the liquidity profiles, the volatility, the correlations, et cetera, across the entire ecosystem of both tangible and digital assets. Is that a disruption or complementary to portfolio management? I would say it's probably both.

Nathan Hunt:  There's been a long debate between a permissioned and permissionless blockchain systems. I think this is related to the points you guys are making about creating a complement versus a disruptive force to existing systems. Advocates of permissionless systems believe that these are the truest manifestations of the technology of blockchain, of cryptography, of smart contracts, whereas people who believe in permissioned systems believe they are more reliable, easier to operate, and not incidentally, easier to regulate. Do you have a dog in this fight?

Chuck Mounts:  I wouldn't say I have a dog in the fight, just to kind of put it out there kind of in those terms. I think there's going to be an evolution of the power and potential of decentralized system against that of the centralized system. There are trade-offs that have to be made, or that are made, between one versus the other.

Chuck Mounts:  To the purest on either side, they would say that their system, the one they're advocating for, provides the best balance of safety, soundness, execution, public good, efficiency, when you look at the whole picture. But I think that we are well positioned, and what is likely to evolve is some blending where you have perhaps a decentralized financial system or permissionless technology that is coupled with some centralized function. We talk about that in our research report, that there are some trade-offs that have to be made, and perhaps we're going to see a blending or hybrid approaches to maximize kind of the full potential impact of the permissionless system.

Nathan Hunt:  Alex, anything to add?

Alex Birry:  No dog in the fight, but no, first, to me as a credit analyst, I look at, again, what that means for credits for our rating universe, and yes, the permissionless is almost more the blue sky thinking. I can see why some people would think that's the purest form. Now, in many cases, where regulations will probably encourage some players to move more towards permissions, it could be that permissions will be the only way to go in some cases. I think regulations will also, in many cases, for some of these applications, have a decisive role in the shape that those blockchains take, including whether they're permissionless or if there have to be permissions.

Nathan Hunt:  Since I have the good fortune of having two individuals with backgrounds as credit analysts on this podcast, and I consider credit analysts to be experts in the area of risk, whenever you have a new technology or a new set of technologies, it's challenging to picture the future state, let alone the future risks. What are you seeing right now on the new risks of this set of technologies, meaning blockchain, cryptography, and smart contracts? Where are the risks?

Alex Birry:  With these new types of assets that are being introduced, obviously that will require new data and new types of... or new frameworks for risk analytics and capabilities. I mean, traditional measures of risk performance are not gone, thinking of volatility, correlation, liquidity, credit, et cetera, but that will be blended with probably new types of analysis and measurement, thinking of protocol risk, and hash rates, et cetera. Given the stage of development and maturity of these ecosystems, we are seeing lots of new ventures and new apps, but many fail already, or will fail, some because of fraudulent developers, and there's no... or limited customer or investor protection within these spheres.

Alex Birry:  The security of dealing with some of these protocols or apps probably will require, as well, people to form some views, for instance on one, the quality of the code, the code that's underpinning some of these applications and protocols, and B as well, being able to assess the quality of the governance. Governance is not gone with these applications. Actually, governance can really complement, sometimes, the codes that's crucial to these protocols, and bad code or bad governance can lead to losses for people who are in this sphere.

Alex Birry:  But obviously, it's very technical area, so few people who are probably partaking in some of these apps can really assess the quality of the code, the robustness of these protocols, in the same way that probably few can really assess the robustness of the governance, in terms of the risk of a few people making decisions that will ultimately lead to losses. I think over time, some standards will emerge, as well as the need for independence, when informed and transparent external providers offer assessments. And maybe finally, one last comment, also at the macro level loss. If this really takes off, then there will be a need for lots of information aggregation. There are lots of sources. These are very transparent ecosystems, so there's a lot of bits of sources for information in terms of volumes involved, et cetera, but questions around how reliable they are when they start aggregating some of this data, or how transparent they are. So there will be some need for some aggregators of data that are transparent and truly independent.

Chuck Mounts:  Building on what Alex was saying, it strikes me that Alex gave some good and specific examples of different forms of risk, but if we take it up a level, that the introduction of these technologies and capabilities in the digitalization of markets could be framed with some high-level questions, so operating risk as a bucket, market risk as a bucket, business risk, right? Then, each of those have different applications in the risk analytic framework. Whether you're looking at, for instance, market risk as a broad heading, how that gets applied to a sovereign versus an individual company, or an industrial company versus a bank, can be quite different, given the parameters that are being discussed.

Chuck Mounts:  Part of the purpose of this report is not to dive into those deep silos of each of those components, but to set the framework, that this is how we should be thinking about it, or this is a way to be thinking about it, and initiate the discussion with our stakeholders, to go on that journey and help formulate the more detailed analytics that are going to be coming as these technology and capabilities emerge and mature.

Nathan Hunt:  Digitization minimalists love to talk about scalability. Any technology involved in financial markets is going to struggle with the scalability issue. When talking about the volume of transactions, we tend to fall back on exponential notation. Current technologies around blockchain have been criticized for not being able to scale to meet our current needs. To what extent do you believe those criticisms are fair or unfair, and why?

Chuck Mounts:  I think in your question, you said a phrase that really answers the question, "Current technologies." Why would we assume that the current technologies that we have today are going to be the technologies that are going to be available tomorrow, or next week, or next month, or next year. At its very core, the development and evolution of digitalization of markets powered by cryptography, smart contracts, and blockchain is innovative. We should fully expect that as problems, or challenges, or obstacles emerge, that the power, the innovation ecosystem will create new derivations of the technology that will help overcome that. In fact, we're seeing that as we speak now, with the evolution from proof of work to proof of stake, or the additional protocols that are built to facilitate and accelerate transaction speeds, so I think we should assume that the technology will advance that will allow and foster scalability relative to where we currently are.

Alex Birry:  Maybe just one point I would add, that I fully agree with what Chuck just said. One way so often people present the choices that are being made is that blockchains can be a compromise of balance between security, decentralization, and scalability, and some of the initial forms of technology we've seen so far, including Bitcoin in current shape, have been clearly focused a lot on the ethos of decentralization and security, but at the detriment of scalability, and probably what we're going to see is, as Chuck said, it's probably more hybrid form, and compromises being made more towards scalability by some of these changes and choices that would be made for the consensus processes. Therefore, I think it's when you start exploring those shades of gray that we will see the real potential of scalability, so this shift in the compromise can be the promise of a greater scalability.

Nathan Hunt:  There is so much in the article that you have written, so it would be impossible to cover everything in the article in the time we have, but NFTs have been generating a lot of headlines lately. I've noticed that NFTs seem to excel at generating two things, sudden profits and eye rolls. Help me to understand why I should take NFTs seriously as an asset class.

Chuck Mounts:  Completely understand and agree that that is often the reaction. At the end of the day, I think going to the power and utility of NFTs is really around just the power and concept of tokenization. In the case of NFTs, it's applied in the context of a non-fungible asset, so it's a unique asset that's digitalized. You know, I think that the power of the NFT goes well beyond the piece of art that sells for $60 million or what some of the high-profile things are. It's really the foundation of how a digital asset class is established, and how people access that digital asset class.

Chuck Mounts:  One thing that I've often heard skeptics and the eye-rollers, I guess, is, "Oh, who wants a piece of digital art, or why would that have any value in and of itself anyway?" Going back to the comment that Alex made early on, we are not striving to provide a value to the merit or demerit of it. We are trying to provide the foundation, and how it works, and what some of the implications can be without ascribing is it right or wrong. I think the eye rolls are often with the framework of passing a judgment whether something is right or wrong, and that's not what we're striving to do here.

Alex Birry:  And I encourage anyone to play the game a bit. I was kind of a bit on a journey on that. I tried for the first time to buy an NFT last weekend. People talk so much about that. I'm going to try buy one. I thought I'm going to spend the equivalent of 30 US dollars, went on one of the main websites selling NFT arts, and yeah, tried to buy kind of a digital rooster. Quite fun, $30, for the right price, and then I went to pay with my wallet, and then got told that it would be for the equivalent of $70 of gas, or fees for the transaction. That was certainly a learning experience. It was probably a massive eye roll for me, but then actually, you realize that then you'd share that experience with others until you actually maybe you shouldn't have gone for one that you have to pay for on the Ethereum. You can use a different platform. Then you realize that actually, yeah, some of these things will evolve.

Alex Birry:  Believe me, I got caught in a game. I spent probably a good hour on that platform looking at art, and yeah, like going to your local art fair, probably 95% of it is junk, but you do see as well, when you sift through that, some interesting and innovative nuggets as well through that. So, yeah, I think it's easy to roll your eyes first, but you can also get easily caught in the game, and that's coming from a massive skeptic originally.

Nathan Hunt:  It wouldn't be an Essential Podcast if I didn't bring up ESG at least once. Let's talk about the environmental impact of mining. Is this going to hold back this asset class, digital assets, or will we evolve out of this? How much should we focus on the environmental impact issue?

Alex Birry:  It's a question that's been really polarizing market observers, and everyone knows reportedly, Bitcoin at the moment, or Bitcoin mining consumes as much energy as a country like The Netherlands, so certainly, that grabs the headlines, and there's no denying that's a lot of energy consumption, so potential climate impact. Now, that hides quite a few things, A first the fact that as we discussed at the start, the technology is not in its final form. Some enhancements will probably really unleash a better scalability of Bitcoin, and therefore as well, reduce its energy consumption. That's one point.

Alex Birry:  I'd say a second point as well is let's assume that at some point, Bitcoin becomes more efficient, still consumes quite a bit of energy, but is more efficient. Ultimately, there's a value judgment as well in saying it consumes too much energy. Depends as well on your background. If you are in a country where you can't trust your politicians to do the right thing, where your central bank has no control over the local currency, and your savings are always at risk of being massively devalued, you probably see quite some value in having an asset where you can at least protect your wealth, which is probably a different perspective from if you live in a developed economy where you are not faced with the same dilemmas in terms of how to protect your wealth. That's another aspect on the value judgment.

Alex Birry:  And third point as well, this debate around Bitcoin energy consumption often obfuscates, as well, some of the potential attractions or capabilities that the underlying blockchain technology could offer in terms of climate risk. There have been numerous reports from World Economic Forum and all of the observers on some of the capabilities that blockchain could bring, for instance, in terms of capacity to do carbon tracing. I think that the total picture is much more complicated than just saying Bitcoin consumes too much energy.

Chuck Mounts:  And Nathan, one of the things that we talk about in the report is looking at these capabilities and the digitalization of markets from totality of an ESG framework, not just the E, and not just specifically the green component. One of the key promises of digitalization and blockchain is democratization of access to financial services for the un- and under-banked, which count in the billions in terms of people worldwide. When we look at energy consumption and the cleanliness of that energy consumption, it of course is important, and should be a point of discussion, and a point that needs to be addressed, but it's not the sole point when you're looking at digitalization from the context of ESG. It's important that we have, I would say, a total understanding of the conversation.

Nathan Hunt:  Chuck, Alex, we are reaching the end of our time together, but I want to thank you both for coming on the podcast. I truly appreciate you sharing this paper with myself and with my audience.

Alex Birry:  Nathan, I'm very grateful for the invitation. Thank you very much.

Chuck Mounts:  Yes, thank you very much. It was great to be here today.

Nathan Hunt:  The Essential Podcast is produced by Molly Mintz, with assistance from Kurt Burger and Camille McManus. At S&P Global, we accelerate progress in the world by providing intelligence that is essential for companies, governments, and individuals to make decisions with conviction. From the majestic heights of 55 Water Street in Manhattan, I am Nathan Hunt. Thank you for listening.